4% Drawdown If Preservation Of The Capital Is Not A Concern ?

Bostonerimus1

GazzaBloom said:

Bostonerimus1 said:

Tools to help you die with nothing are giving your money away and annuities.

Or a visit to your local Ferrari dealership with your 25% TFLS 

Then you'd still die with an asset.

michaels

Bostonerimus1 said:

GazzaBloom said:

Bostonerimus1 said:

Tools to help you die with nothing are giving your money away and annuities.

Or a visit to your local Ferrari dealership with your 25% TFLS 

Then you'd still die with an asset.

Not if you die whilst driving said asset....

Bostonerimus1

michaels said:

Bostonerimus1 said:

GazzaBloom said:

Bostonerimus1 said:

Tools to help you die with nothing are giving your money away and annuities.

Or a visit to your local Ferrari dealership with your 25% TFLS 

Then you'd still die with an asset.

Not if you die whilst driving said asset....

...even a crashed Ferrari can be worth quite a lot. I think to truly end with nothing you'd have to spend everything on consumables, sell all physical assets or just give stuff away and then you can join the nunnery or monastery. But realistically most people want to leave something to their kids, if they can, and so they will spend sensibly with one eye on their financial balances and not want to spend down to nothing.

Qyburn

Hoenir said:

The suggestion was for a fixed withdrawal. Fund divided by number of years remaining. 

No, it was for each withdrawal to be a predetermined fraction of the remaining pot.

kuratowski

I've lost track of the number of different withdrawal strategies discussed on this thought-provoking thread.  Add in timing of SP/DB and tax efficiency considerations, it all makes for a highly complex decision.

Makes me glad I won't be making this decision alone.

Stubod

To a large degree I suppose it depends on what other income / savings you have, what your spending expectations are and how long you intend to live for.

For simplicity I set up a spreadsheet covering 25 years, starting with our maximum current "pot", and assume 2% growth and I want the annual "income" from the pot to go up by 4% per year to cover inflation. Then just type in a number which results in the 25 year mark as being as near to "0" as I can get it....and you can always review this at the start of each year aiming for the end result to be as near to "0" as you can get it...

eg with a starting pot of £400k, this would give £12,500 per year drawdown increasing by 4% / yr  and would leave around £2k left in the pot after 25 years...

NoMore

Stubod said:

To a large degree I suppose it depends on what other income / savings you have, what your spending expectations are and how long you intend to live for.

For simplicity I set up a spreadsheet covering 25 years, starting with our maximum current "pot", and assume 2% growth and I want the annual "income" from the pot to go up by 4% per year to cover inflation. Then just type in a number which results in the 22 year mark as being as near to "0" as I can get it....and you can always review this at the start of each year aiming for the end result to be as near to "0" as you can get it...

eg with a starting pot of £400k, this would give £12,500 per year drawdown increasing by 4% / yr  and would leave around £2k left in the pot after 25 years...

I know you've done this for simplicity but neither growth or inflation are linear and as such this plan will in no way match real life after 25 years. I think everybody starts with a simple model like this, but in reality it is pretty worthless as a plan. As mentioned previously SORR could very quickly kill such a simple model.

This is why its such a hard problem to 'solve' (in reality its not solvable), nobody can predict the future (inflation, growth, death)

Stubod

NoMore said:

I know you've done this for simplicity but neither growth or inflation are linear and as such this plan will in no way match real life after 25 years. I think everybody starts with a simple model like this, but in reality it is pretty worthless as a plan. As mentioned previously SORR could very quickly kill such a simple model.

This is why its such a hard problem to 'solve' (in reality its not solvable), nobody can predict the future (inflation, growth, death)

Exactly this, and that is why I use this simple model, because it is impossible to predict real inflation and returns over any length of time. BUT, you have to start somewhere with something, otherwise how else do you do it?? 

And as I said, you review it every year, if your "pot" has gone down more than expected, then 4% the following year may mean you reduce your annual "take", equally if it goes up, you can increase it....

MK62

Stubod said:

NoMore said:

I know you've done this for simplicity but neither growth or inflation are linear and as such this plan will in no way match real life after 25 years. I think everybody starts with a simple model like this, but in reality it is pretty worthless as a plan. As mentioned previously SORR could very quickly kill such a simple model.

This is why its such a hard problem to 'solve' (in reality its not solvable), nobody can predict the future (inflation, growth, death)

Exactly this, and that is why I use this simple model, because it is impossible to predict real inflation and returns over any length of time. BUT, you have to start somewhere with something, otherwise how else do you do it?? 

And as I said, you review it every year, if your "pot" has gone down more than expected, then 4% the following year may mean you reduce your annual "take", equally if it goes up, you can increase it....

....or you could use inflation as the ceiling to your annual increase.......in good years it could build in some wiggle room to help in bad years........of course if the bad years come first, you'll probably have some negative adjusting to do, but that's the nature of sequence risk unfortunately.

By way of comparison though, according to LateGenXer's useful bond ladder tool, it appears a 25 year IL gilt ladder would pay over £17000 pa, for a £400k initial outlay, so perhaps £12500pa might be a little over cautious........though there's no way to know for sure.

Bostonerimus1

NoMore said:

Stubod said:

To a large degree I suppose it depends on what other income / savings you have, what your spending expectations are and how long you intend to live for.

For simplicity I set up a spreadsheet covering 25 years, starting with our maximum current "pot", and assume 2% growth and I want the annual "income" from the pot to go up by 4% per year to cover inflation. Then just type in a number which results in the 22 year mark as being as near to "0" as I can get it....and you can always review this at the start of each year aiming for the end result to be as near to "0" as you can get it...

eg with a starting pot of £400k, this would give £12,500 per year drawdown increasing by 4% / yr  and would leave around £2k left in the pot after 25 years...

I know you've done this for simplicity but neither growth or inflation are linear and as such this plan will in no way match real life after 25 years. I think everybody starts with a simple model like this, but in reality it is pretty worthless as a plan. As mentioned previously SORR could very quickly kill such a simple model.

This is why its such a hard problem to 'solve' (in reality its not solvable), nobody can predict the future (inflation, growth, death)

In my 30s I did something similar using 4% plus inflation ie Bengen/Trinity as a withdrawal and upper and lower limits for inflation, but there were so many variables and unknowns that I decided to concentrate on the things I could control and know. So I looked at my budget and spending as that's as important as the potential size of your pension pot. I decided to reduce my need for income in retirement and so bought a two family house that would produce rental income and made a plan to pay off the mortgage in 15 years. This really reduced that amount of income I needed to generate in retirement and I realized that if I had a small DB pension or annuity my withdrawal rate could be 0%. So I found a government job with a DB pension and stopped worrying about SWR and spreadsheets. Sometimes it's good to stop and look at the problem from another perspective. I've now been retired for 10 years and have not taken anything from my DC pensions and investments.